How Bankruptcy Impacts Unsecured Debt
If you are considering bankruptcy, there are a number of terms you need to understand relating to debt:
- Secured debt : This is generally debt on something that can be repossessed, such as a car, a boat, or a home.
- Unsecured debt: This is generally (but not always) debt on something that cannot be repossessed, such as medical bills or other services. It also includes education loans, taxes, child support and alimony.
- Dischargeable: This type of debt may be completely forgiven (in Chapter 7) or can be reorganized or partly forgiven (in Chapter 13).
- Non-dischargeable: This type of debt cannot be forgiven in Chapter 7 and may or may not become part of a Chapter 13 repayment plan.
How a debt will be handled depends upon what kind of debt it is and what kind of bankruptcy you pursue. The best way to decide whether Chapter 7 or Chapter 13 is appropriate for your specific case is to talk to a bankruptcy lawyer at Marrs & Terry, PLLC.
We have helped thousands of people like you get back on solid financial ground. Contact our law office to schedule a free consultation. We have six Michigan offices for your convenience: Ann Arbor and Jackson. We bring more than 18 years of experience to every case and we offer in-home appointments upon request.
How Unsecured Debts Work With Different Filings
- Under Chapter 7: Most unsecured debts can be completely discharged under Chapter 7 bankruptcy, including credit cards, medical bills, utility bills, and personal loans.
- Debts that are NOT discharged under Chapter 7 typically include recent purchases on credit cards and cash advances within 70 days.
- Under Chapter 13: Some repayment is made on unsecured debts.
- The bankruptcy court sets up a payment plan based on your ability to pay. The interest rate on unsecured debt is reduced to 0% and penalties and late fees do not accumulate.
Some Debts Are Not Dischargeable In Bankruptcy
Chapter 7 bankruptcy will not discharge alimony, child support or student loans, although the Chapter 13 repayment plan can make it easier to pay those debts. Current and back taxes cannot be discharged unless the tax debt is more than three years old and the tax returns for those years were filed more than 2 years ago. Even if the taxes cannot be discharged, however, in Chapter 13 we can reduce the amount of penalties and interest that are owed. You cannot discharge state or federal fines and penalties, such as traffic tickets and restitution.
These are general rules for dischargeable debt reduction. It’s important to talk with a bankruptcy attorney to understand how your specific case will be handled in bankruptcy court.
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